The Liberal Democrats have committed to a second EU referendum and to fight a hard Brexit as the centerpiece of its manifesto, as leader Tim Farron attempts to positions his party as the true opposition to Theresa May’s Conservative Party.
Opening the manifesto, the Lib Dems reeled off the effect Brexit has already caused, such as a plummeting pound, slowing economy, rising inflation, and that the government has borrowed billions to close the gap in lost tax revenue.
The party’s resistance towards Brexit will grab the headlines and likely overshadow its flagship tax pledge which calls for an immediate 1p increase on the basic, higher and additional rates of income tax, and a UK-wide commensurate 1p rise in dividend taxation. The party said this tax measure will raise a ringfenced £6bn to be spent on NHS and social care services in England, Wales and Northern Ireland.
The IFS has calculated that the party’s plans to increase income tax will roughly affect 30m taxpayers. The Lib Dem manifesto states their long term ambition to raise the national insurance threshold in line with the income tax threshold.
Elsewhere in tax, the party has committed to a “fairer taxation system” where higher earners and large companies pay a fair share. To do this, the Lib Dems will reverse a number of Tory policies, such as dumping the marriage allowance and the capital gains cuts and extended relief; lowering the inheritance tax threshold; and restoring corporation tax to 20%.
The party’s corporation tax crackdown would also manifest as a shift away from a profits-based tax to one that the Lib Dems said will take into account other economic factors such as sales and turnover. This, the party said, will ensure big multinationals cannot avoid paying tax.
On tax avoidance and evasion, the party said it would set up the General Anti Avoidance Rule (GAAR) where HMRC will be set targets to reduce the tax gap. To achieve this, the Lib Dems said it would invest in more HMRC staff.
Unlike the Labour manifesto which vowed to scrap quarterly reporting, the Lib Dem manifesto does not appear to reveal the party’s stance on Making Tax Digital (MTD).
When it comes to small businesses and entrepreneurs, the party would ensure these businesses that provide the backbone of local economies have access to funding. New businesses would be able to receive a start-up allowance to help with their living costs during the first few weeks of their business and access to long term capital would come from an expanding the activities of the state owned British Business Bank.
Banks would be required to fund a local banking sector to satisfy the needs of local small and medium-sized businesses.
The party would review business rates and have earmarked them for future business tax cuts.
The manifesto also includes a section on ensuring everyone earns a decent living. Included in this, the Lib Dems have vowed to eliminate zero hour contracts and make employment rights fit for the gig economy age.
The IFS compared the Lib Dems pledge to increase income tax to the Labour manifesto’s similar income tax increase. “The revenue raised by the Liberal Democrats’ income tax rises, at around £6bn per year, is considerably more certain than the revenue raised by Labour’s," it said.
“Essentially the explanation is that the revenue raised by the Liberal Democrats’ income tax rise would be far less dependent on a small group at the very top, whom evidence suggests are relatively responsive but for whom there is also much uncertainty about the degree of responsiveness.”